Freezing social thresholds will have only a modest effect on employment

THE ECO SCAN – A study by the German IFO institute commissioned by the Senate assesses the impact of the measure announced by Manuel Valls on Tuesday.

A few days before in favor of employment in VSEs and SMEs, carried out at the request of the Senate by the German institute IFO already relativized the impact of one of its flagship measures: the freezing of social and fiscal thresholds for companies with less than 50 employees for three years.

To date, companies that exceed the thresholds of 10.20 or 50 employees are indeed subject to a host of new levies. For more than 10 employees, they must, for example, pay a transport payment, a higher contribution rate to finance vocational training or even a higher contribution on the wages of apprentices (from 11 employees). From 20 employees, participation in vocational training climbs and they must pay a larger contribution for housing … These additional charges will be exempt until 2018 for three years. “From now on, small businesses that cross a threshold will not see their situation change for three years. Social and tax deductions linked to their new situation will only intervene at the end of this freeze, ”Manuel Valls explained on Tuesday.

The objective of this measure is to smooth, which differs according to the workforce in the company. According to data from the IFO study, the number of companies drops sharply to the thresholds of 10, 20 and 50 employees, because the prospect of heavier charges dissuades companies from hiring. The study also compared the situation of French companies to their German counterparts. His verdict is clear: “Our analysis shows that social thresholds reduce employment in France, in particular when hiring a fiftieth employee. There is no equivalent distortion in the size distribution of firms in Germany ”. Even though the German regulations include similar thresholds, the share of French companies with 48 or 49 employees is 1.8 times higher than that of German companies of the same size.

“Modest long-term job growth”

Institute IFO

To remedy this perverse effect, the IFO institute has reviewed several solutions, including the one presented Tuesday by Manuel Valls. And concludes that a temporary freeze in the application of social thresholds would have only a modest effect on employment, limited mainly to an increase in temporary employment. “It is likely that the expansion of employment will be done largely through the signing of fixed-term contracts, thus allowing companies to return below the threshold once the period of suspension has ended,” said IFO. However, employment is expected to experience “modest long-term growth”, as some companies may still choose to stay above the threshold once the freeze has passed. Last year, 40% of bosses in Ile-de-France said they were ready to hire if social thresholds were frozen …

The IFO believes that the best solution would be to eliminate additional social charges, or replace them with a payroll tax, collected on all companies regardless of their size. An alternative would be to calculate what crossing a threshold costs the company, and offer it a reduction in costs accordingly. “Even partial compensation should already reduce the distortions observed,” said the IFO.